Taltech and TAL Apparel Limited v. Esquel Enterprises Limited and Esquel Apparel (CAFC 2009-1344) precedential

Inventor Wong's napkin drawing during deposition of what inspired him from the prior art (the URS) did him in. The district court had found the URS closer to the claimed invention than Robers, a German patent, which was cited.

Following a bench trial, the district court concluded that Taltech inventor John Wong engaged in inequitable conduct during prosecution of the '779 patent before the United States Patent and Trademark Office ("PTO") when he did not disclose a raincoat seam that included heat-fusible adhesive tape (undisclosed raincoat seam, "URS"), and when he misrepresented a raincoat seam previously made and sold by TAL ("double top-stitch seam"). Based on these inequitable conduct findings, and a finding of litigation misconduct, the court declared the case exceptional under 35 U.S.C. § 285. The July 13, 2007, final judgment awarded Esquel attorney fees and costs based on the exceptional case finding. TAL appealed.

This court vacated the inequitable conduct determination. Taltech Ltd. v. Esquel Apparel, Inc., 279 F. App'x. 974 (Fed. Cir. 2008). The attorney fees and costs were also vacated because the exceptional case finding was based, at least in part, on TAL's inequitable conduct in failing to disclose the URS.

On remand, the district court persisted by separating the reasons into distinct bases. Upon which, the district court found inequitable conduct, and topped off the original finding of attorneys fees and costs with interest.

On remand, the district court set out its previously presented reasons as three separate and independent bases to support its finding of exceptional case: (1) inequitable conduct in failing to disclose the URS; (2) inequitable conduct in misrepresenting the double top-stitch seam; and (3) abusive litigation tactics. Taltech, 609 F. Supp. 2d at 1211. On these bases, the court entered a supplemental final judgment which also imposed interest from the date of the earlier July 13, 2007, judgment. TAL moved under Rule 60(a) of the Federal Rules of Civil Procedure that the judgment specify an interest rate under 28 U.S.C. § 1961 from the date of the new judgment. The motion was denied. TAL appeals both the exceptional case finding and the judgment interest rate. This court has jurisdiction under 28 U.S.C. § 1295(a).

Case law backdrop -

District courts may award reasonable attorney fees to a prevailing party "in exceptional cases." 35 U.S.C. § 285. "'[T]he types of conduct which can form a basis for finding a case exceptional [include] . . . inequitable conduct before the P.T.O., [and] misconduct during litigation.'" Hoffman-LaRoche, Inc. v. Invamed, Inc., 213 F.3d 1359, 1365 (Fed. Cir. 2000) (quoting Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989)). To establish inequitable conduct the accused infringer must prove by clear and convincing evidence that the patentee withheld material information with intent to deceive the PTO. Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 872 (Fed. Cir. 1988) (en banc to overrule precedent that stated "gross negligence" mandates a finding of deceptive intent). Materiality and intent are questions of fact that we review for clear error. GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1273 (Fed. Cir. 2001). If the materiality and intent requirements are met, the court must then determine whether the cited conduct amounts to inequitable conduct by balancing the levels of materiality and intent; a greater showing of one allows a lesser showing of the other. Larson Mfg. Co. of S.D. v. Aluminart Prods. Ltd., 559 F.3d 1317, 1327 (Fed. Cir. 2009) (citing Digital Control, Inc. v. Charles Machine Works, 437 F.3d 1309, 1313 (Fed. Cir. 2006)); Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008) ("[T]he district court must still balance the equities to determine whether the applicant's conduct before the PTO was egregious enough to warrant holding the entire patent unenforceable."). "Thus, even if a threshold level of both materiality and intent to deceive are proven by clear and convincing evidence, the court may still decline to render the patent unenforceable." Star Scientific, 537 F.3d at 1365.

We review the district court's ultimate determination of inequitable conduct for an abuse of discretion. Larson Mfg., 559 F.3d at 1327 (citing Digital Control, 437 F.3d at 1313). "An abuse of discretion occurs 'when [the district court's] decision is based on clearly erroneous findings of fact, is based on erroneous interpretations of the law, or is clearly unreasonable, arbitrary, or fanciful.'" Nilssen v. Osram Sylvania, Inc., 528 F.3d 1352, 1357 (Fed. Cir. 2008) (quoting Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1460 (Fed. Cir. 1998) (en banc)).

We review a finding that a case is exceptional within the meaning of 35 U.S.C. § 285 for clear error. Nilssen, 528 F.3d at 1357. "Once a case is determined to be exceptional, we review a district court's decision to award attorney fees under an abuse of discretion standard." Id. (citing Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1328 (Fed. Cir. 2003)). "The trial judge's discretion in the award of attorney fees permits the judge to weigh intangible as well as tangible factors: the degree of culpability of the infringer, the closeness of the question, litigation behavior, and any other factors whereby fee shifting may serve as an instrument of justice." Nat'l Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185, 1197 (Fed. Cir. 1996). "Litigation misconduct and unprofessional behavior are relevant to the award of attorney fees, and may suffice to make a case exceptional." Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1574 (Fed. Cir. 1996).

"[I]nformation is material to patentability when it is not cumulative to information already of record or being made of record in the application, and . . . [i]t refutes, or is inconsistent with, a position the applicant takes in: (i) Opposing an argument of unpatentability relied on by the Office, or (ii) Asserting an argument of patentability." 37 C.F.R. § 1.56(b) (2008).

The CAFC panel majority concurred with the district's finding the napkin of death.

The district court also did not err in concluding that TAL acted with the requisite deceptive intent in failing to disclose the URS. Proving intent does not require direct evidence; it can be inferred from indirect and circumstantial evidence. Star Scientific, 537 F.3d at 1366. TAL chose to disclose the double top-stitch seam, presented as "wholly inadequate for dress shirts" in a 1996 amendment, instead of the URS that more closely approximated a high-priced dress shirt seam; and its failure to disclose the URS, which included Vilene SL33, is consistent with its non-disclosure of the Vilene SL33 best mode. "[T]he involved conduct, viewed in light of all the evidence, including evidence indicative of good faith . . . indicate[s] sufficient culpability to require a finding of intent to deceive." Kingsdown, 863 F.2d at 876. On these bases, the district court could properly infer that TAL acted with deceptive intent. The dissent insists that Robers was before the examiner and the URS was therefore cumulative, but, again, the district court deemed to the contrary because of the faulty translation.

Moreover, there is no evidence of good faith to counter the evidence of intent.

The district court's finding of abusive litigation tactics, based upon several events, was also supported by the CAFC.

"As an appellate court, we are ill-suited to weigh such evidence. All of the instances described above are context-specific, and the district court found that, taken in context, they amounted to litigation misconduct. There is sufficient evidence in the record for the district court to have concluded that trial misconduct occurred, and we are not left with the firm conviction that a mistake was committed. Furthermore, it ill behooves an appellate court to overrule a trial judge concerning litigation misconduct when the litigation occurred in front of the trial judge, not the appellate court." Nilssen, 528 F.3d at 1359. The district court presided over this case for over five years, and it had the opportunity to review the litigation conduct after remand, during which it found that TAL's misconduct continued. Taltech, 609 F. Supp. 2d at 1210. The court also found that based on "Mr. Wong's pattern of changing his testimony to suit the theory du jour and in light of plaintiffs' shifting contentions . . . the record cannot be improved." Id. The trial court had ample reasons for concluding that TAL's litigation tactics were abusive.

The appeals court found that the district court had gotten its interest calculation wrong, because the district court had calculated from its original judgment, which was thrown out on appeal.

Affirmed-in-part, reversed-in-part, and remanded.

The majority opinion, by Judge Mayer, joined by Judge Friedman, took pains to counter the dissent by Judge Gajarsa, who damned the majority decision: "the majority has approved a deceptive intent finding that lacks any support in law or fact and represents a dangerous departure from our precedent."

This case exemplifies the ongoing pandemic of baseless inequitable conduct charges that pervade our patent system.

Defendants' inequitable conduct claim rests on a handmade drawing that the inventor, John Wong, sketched on a piece of paper during his deposition. Defendants' counsel requested that Wong draw the prior art that "inspired" him to experiment in making pucker-free seams in dress shirts. In response, he sketched a prior art seam used to waterproof raincoats manufactured in the TAL factory. During litigation, Wong's drawing was labeled the "Undisclosed Raincoat Seam" ("URS"). After a bench trial, the district court found that Wong committed fraud on the U.S. Patent and Trademark Office ("PTO") because he failed to disclose the URS as the "inspiration" for his invention.

We vacated the inequitable conduct finding on the first appeal because there is no legal requirement that an inventor disclose the "inspiration" for his invention to the PTO. We remanded the case for a proper substantive inquiry into whether the URS was merely cumulative of the prior art on record with the PTO. Taltech Ltd. v. Esquel Enters., Inc., 279 F. App'x 974, 977 (Fed. Cir. May 22, 2008) ("If the undisclosed raincoat seam was merely cumulative to Robers, then no inequitable conduct lies in its nondisclosure.").

On remand, the district court again found that Wong had committed inequitable conduct based on his failure to disclose the URS, but did so based on a flawed cumulativeness inquiry. The district court erroneously limited the teachings of both the URS and the Robers reference in order to render them non-cumulative prior art. Had the district court properly interpreted the teachings of both references, it would have found that the URS was merely cumulative of Robers.

The district court also improperly inferred intent to deceive from the materiality of the non-disclosed reference and several statements Wong made to the PTO. In both instances, the district court drew an inference of bad faith despite an equally plausible, and likely more reasonable, inference of good faith. Such an analysis has been rejected by this court and is legally erroneous. See Scanner Techs. Corp. v. ICOS Vision Sys. Corp., 528 F.3d 1365, 1376 (Fed. Cir. 2008) ("Whenever evidence proffered to show either materiality or intent is susceptible of multiple reasonable inferences, a district court clearly errs in overlooking one inference in favor of another equally reasonable inference.").

Judge Gajarsa cogently detailed his reasoning by grounding the facts in context.

The district court's findings are so clearly erroneous that affirming its determinations causes this court to compound errors occasioned by the district court's failure to follow this court's precedent.

There is more flutter to this napkin.